Correlation Between National Australia and EROAD

Can any of the company-specific risk be diversified away by investing in both National Australia and EROAD at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining National Australia and EROAD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Australia Bank and EROAD, you can compare the effects of market volatilities on National Australia and EROAD and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in National Australia with a short position of EROAD. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Australia and EROAD.

Diversification Opportunities for National Australia and EROAD

-0.23

Correlation Coefficient

National Australia  EROAD

Very good diversification

The 3 months correlation between National and EROAD is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and EROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EROAD and National Australia is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on National Australia Bank are associated (or correlated) with EROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EROAD has no effect on the direction of National Australia i.e., National Australia and EROAD go up and down completely randomly.

Pair Corralation between National Australia and EROAD

Assuming the 90 days trading horizon National Australia is expected to generate 9.95 times less return on investment than EROAD. But when comparing it to its historical volatility, National Australia Bank is 17.1 times less risky than EROAD. It trades about 0.07 of its potential returns per unit of risk. EROAD is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  70.00  in EROAD on September 26, 2024 and sell it today you would earn a total of  37.00  from holding EROAD or generate 52.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

National Australia Bank  vs.  EROAD

National Australia Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EROAD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, EROAD is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with National Australia and EROAD

The main advantage of trading using opposite National Australia and EROAD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Australia position performs unexpectedly, EROAD can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in EROAD will offset losses from the drop in EROAD's long position.

The idea behind National Australia Bank and EROAD pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.